<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission File Number 0-2525
HUNTINGTON BANCSHARES INCORPORATED
MARYLAND 31-0724920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 SOUTH HIGH STREET, COLUMBUS, OHIO 43287
Registrant's telephone number (614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
===== =====
There were 191,241,481 shares of Registrant's without par value common stock
outstanding on October 31, 1997.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ................................... $ 1,032,222 $ 1,071,361 $ 1,025,829
Interest bearing deposits in banks ........................ 7,580 3,418 3,002
Trading account securities ................................ 54,297 1,873 11,444
Federal funds sold and securities
purchased under resale agreements .................... 309,882 21,066 24,668
Mortgages held for sale ................................... 145,584 121,422 116,793
Securities available for sale - at fair value ............. 5,435,715 5,209,393 5,222,930
Investment securities - fair value $35,078; $354,702;
and $376,473, respectively ........................... 34,514 345,135 367,308
Total loans (1) ........................................... 17,692,634 16,758,155 16,359,080
Less allowance for loan losses ....................... 257,883 230,778 230,989
------------ ------------ ------------
Net loans ................................................. 17,434,751 16,527,377 16,128,091
------------ ------------ ------------
Premises and equipment .................................... 392,777 380,460 381,332
Customers' acceptance liability ........................... 21,858 56,248 56,023
Accrued income and other assets ........................... 706,955 634,193 661,040
------------ ------------ ------------
TOTAL ASSETS .............................................. $ 25,576,135 $ 24,371,946 $ 23,998,460
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits (1) ........................................ $ 17,589,786 $ 16,402,312 $ 16,153,791
Short-term borrowings ..................................... 2,905,003 4,107,923 3,920,210
Bank acceptances outstanding .............................. 21,858 56,248 56,023
Long-term debt ............................................ 2,365,831 1,585,863 1,720,712
Company obligated mandatorily redeemable capital securities
of Huntington Capital I ................................... 200,000 --- ---
Accrued expenses and other liabilities .................... 547,666 433,942 381,035
------------ ------------ ------------
Total Liabilities .................................... 23,630,144 22,586,288 22,231,771
------------ ------------ ------------
Shareholders' equity
Preferred stock - authorized 6,617,808 shares;
none outstanding
Common stock - without par value; authorized
300,000,000 shares; issued and outstanding
193,282,613; 182,265,457; and 182,233,920
shares, respectively ............................ 1,528,771 1,290,968 1,290,938
Less 2,148,882; 9,284,844; and 7,514,688
treasury shares, respectively ................... (49,494) (204,634) (160,641)
Capital surplus ...................................... 401,847 401,176 403,651
Net unrealized gains (losses) on securities
available for sale .............................. 2,793 (13,931) (33,506)
Retained earnings .................................... 62,074 312,079 266,247
------------ ------------ ------------
Total Shareholders' Equity ........................... 1,945,991 1,785,658 1,766,689
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $ 25,576,135 $ 24,371,946 $ 23,998,460
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
(1) See page 8 for detail of total loans and total deposits.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands of dollars, except per share amounts) SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
1997 1996 1997 1996
Interest and fee income ........................... ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Loans ........................................ $ 409,395 $ 356,331 $ 1,203,144 $ 1,046,769
Securities ................................... 88,221 86,180 267,955 265,365
Other ........................................ 5,205 2,942 10,614 10,882
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME .............. 502,821 445,453 1,481,713 1,323,016
------------ ------------ ------------ ------------
Interest Expense
Deposits ..................................... 168,861 146,103 479,733 431,636
Short-term borrowings ........................ 44,888 44,271 145,087 133,659
Long-term debt ............................... 31,914 28,843 89,226 91,688
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE ............. 245,663 219,217 714,046 656,983
------------ ------------ ------------ ------------
NET INTEREST INCOME ................ 257,158 226,236 767,667 666,033
------------ ------------ ------------ ------------
Provision for loan losses ......................... 28,351 22,978 81,562 51,333
------------ ------------ ------------ ------------
NET INTEREST INCOME
AFTER PROVISION FOR LOAN LOSSES 228,807 203,258 686,105 614,700
------------ ------------ ------------ ------------
Total non-interest income (1) ..................... 96,097 81,384 254,329 235,894
Total non-interest expense (1) .................... 244,910 168,473 614,576 510,502
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ......... 79,994 116,169 325,858 340,092
Provision for income taxes ........................ 38,762 38,725 123,844 114,955
------------ ------------ ------------ ------------
NET INCOME ......................... $ 41,232 $ 77,444 $ 202,014 $ 225,137
============ ============ ============ ============
PER COMMON SHARE (2)
Net income ................................... $0.22 $0.40 $1.06 $1.16
Cash dividends declared ...................... $0.20 $0.18 $0.56 $0.50
AVERAGE COMMON SHARES OUTSTANDING (2) ............. 191,245,312 191,710,810 190,562,120 193,293,766
</TABLE>
See notes to consolidated financial statements.
(1) See page 9 for detail of non-interest income and non-interest expense.
(2) Adjusted for stock splits and stock dividends, as applicable.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET
UNREALIZED
COMMON COMMON TREASURY TREASURY CAPITAL GAINS(LOSSES) RETAINED
SHARES STOCK SHARES STOCK SURPLUS ON SECURITIES EARNINGS TOTAL
- -------------------------------------------- -------- ---------- -------- --------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1996:
Balance, beginning of period 163,172 $1,075,057 (8,352) ($180,632) $382,732 $42,790 $452,746 $1,772,693
Stock issued for acquisitions 4,733 102,760 5,037 107,797
Net income 225,137 225,137
Cash dividends declared
($.50 per share) (82,556) (82,556)
Stock options exercised 179 3,566 (2,984) 582
10% stock dividend 10,431 208,110 2,837 78,030 2,444 (288,790) (206)
Treasury shares purchased (8,066) (190,294) (582) (190,876)
Treasury shares sold:
Shareholder dividend reinvestment plan 994 22,378 386 22,764
Employee benefit plans 160 3,551 246 3,797
Conversion of convertible notes 50 342 342
Change in net unrealized gains (losses)
on securities available for sale (76,296) (76,296)
Pre-merger transactions of pooled
subsidiary 8,581 7,429 16,372 (40,290) (16,489)
------- ---------- ------ -------- -------- ------ -------- ----------
Balance, end of period 182,234 $1,290,938 (7,515) ($160,641) $403,651 ($33,506) $266,247 $1,766,689
======= ========== ====== ======== ======== ====== ======== ==========
Nine Months Ended September 30, 1997:
Balance, beginning of period 182,265 $1,290,968 (9,285) ($204,634) $401,176 ($13,931) $312,079 $1,785,658
Stock issued for acquisition 2,881 65,220 12,560 77,780
Net income 202,014 202,014
Cash dividends declared
($.56 per share) (89,668) (89,668)
Stock options exercised 242 3,415 (1,921) 1,494
10% stock dividend 9,181 236,214 5,274 124,920 (51,487) (309,847) (200)
Treasury shares purchased (1,930) (53,427) (2,748) (56,175)
Treasury shares sold:
Shareholder dividend reinvestment plan 534 11,968 2,345 14,313
Employee benefit plans 135 3,044 810 3,854
Change in net unrealized gains (losses)
on securities available for sale 16,724 16,724
Pre-merger transactions of pooled
subsidiary 1,836 1,589 41,112 (52,504) (9,803)
------- ---------- ------ -------- -------- ------ -------- ----------
Balance, end of period 193,282 $1,528,771 (2,149) ($49,494) $401,847 $2,793 $ 62,074 $1,945,991
======= ========== ====== ======== ======== ====== ======== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------
(in thousands of dollars) NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ....................................................... $ 202,014 $ 225,137
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses ................................ 81,562 51,333
Provision for depreciation and amortization .............. 46,605 65,813
Deferred income tax expense .............................. 20,954 10,975
(Increase) decrease in trading account securities ........ (52,424) 1,480
(Increase) decrease in mortgages held for sale ........... (24,162) 51,538
Net gains on sales of securities ......................... (6,944) (13,379)
Net gains on sales of loans .............................. (7,432) 0
Decrease in accrued income receivable .................... 12,939 6,355
Net increase in other assets ............................. (55,722) (38,990)
Increase (decrease) in accrued expenses .................. 60,226 (18,488)
Net increase (decrease) in other liabilities ............. 34,844 (26,314)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 312,460 315,460
----------- -----------
INVESTING ACTIVITIES
(Increase) decrease in interest bearing deposits in banks ........ (4,162) 286,952
Proceeds from :
Maturities and calls of investment securities ............ 88,306 78,309
Maturities and calls of securities available for sale .... 606,012 381,855
Sales of securities available for sale ................... 1,876,997 2,096,102
Purchases of:
Investment securities .................................... (2,962) (15,530)
Securities available for sale ............................ (2,267,962) (2,416,828)
Proceeds from sales of loans ..................................... 408,258 94,755
Net loan originations, excluding sales ........................... (1,092,320) (912,377)
Proceeds from disposal of premises and equipment ................. 6,381 1,616
Purchases of premises and equipment .............................. (39,487) (39,131)
Proceeds from sales of other real estate ......................... 13,848 14,000
Net cash (paid) received from purchase of subsidiaries ........... (6,665) 631
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES ............. (413,756) (429,646)
----------- -----------
FINANCING ACTIVITIES
Increase in total deposits ....................................... 717,165 251,802
(Decrease) increase in short-term borrowings ..................... (1,213,266) 282,071
Proceeds from issuance of long-term debt ......................... 1,442,500 450,424
Payment of long-term debt ........................................ (462,704) (863,244)
Dividends paid on common stock, including pre-merger dividends
of pooled subsidiary ..................................... (101,221) (92,143)
Repurchase of common stock ....................................... (56,175) (199,381)
Proceeds from issuance of common stock ........................... 24,674 31,397
----------- -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 350,973 (139,074)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS ................ 249,677 (253,260)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 1,092,427 1,303,757
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 1,342,104 $ 1,050,497
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the results for the interim
periods. The Notes to the Consolidated Financial Statements appearing in
Huntington's 1996 Annual Report to Shareholders should be read in conjunction
with these interim financial statements.
B. In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (FAS 125). The standard provides that,
following a transfer of financial assets, an entity is to recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished. The Statement is effective for transactions
occurring after December 31, 1996. The FASB also subsequently issued FAS No. 127
that delayed until January 1, 1998, the effective date of certain provisions of
FAS 125. Transactions subject to the later effective date include securities
lending, repurchase agreements, dollar rolls, and similar secured financing
arrangements. Application of the new rules did not have a material impact on
Huntington's accompanying consolidated financial statements. Huntington also
does not expect a material impact in the future.
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share" (FAS 128), which is required to be adopted on December 31, 1997. At that
time, Huntington will report both basic and diluted earnings per share, with all
prior periods restated to conform to the new method. The impact of FAS 128 is
not expected to be material.
C. On September 30, 1997, Huntington completed the acquisition of First Michigan
Bank Corporation (First Michigan), a $3.7 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for all of the outstanding common stock
of First Michigan. First Michigan had total loans and deposits of $2.7 billion
and $3.1 billion, respectively, and total equity of $286 million at the date of
acquisition. The transaction was accounted for as a pooling of interests;
accordingly, all financial information appearing in this report, except
dividends per share, has been restated to include the results of First Michigan.
The separate results of operations for Huntington and First Michigan were as
follows ($ in millions, except per share):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Interest Income:
Huntington $218.7 $191.7 $655.4 $565.7
First Michigan 38.5 34.5 112.3 100.3
------ ------ ------ ------
Combined $257.2 $226.2 $767.7 $666.0
====== ====== ====== ======
Net Income (Loss):
Huntington $ 75.7 $ 66.4 $214.7 $194.3
First Michigan (34.5) 11.0 (12.7) 30.8
------ ------ ------ ------
Combined $ 41.2 $ 77.4 $202.0 $225.1
====== ====== ====== ======
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings (loss) per common share
outstanding:
Huntington $ .48 $ .42 $1.36 $1.20
First Michigan (1.24) .39 (.46) 1.09
Combined $ .22 $ .40 $1.06 $1.16
</TABLE>
In connection with the merger, Huntington incurred a restructuring
charge of $35.0 million consisting primarily of personnel, facilities, and
systems costs, as well as $12.2 million of professional fees and other costs to
effect the merger (reported on a combined basis as "Special Charges"). Other
one-time costs related to the acquisition were an additional loan loss provision
of $4.8 million and non-interest expenses of $4.0 million. In addition, the
acquired portfolio of investment securities held-to-maturity was sold and/or
transferred to the available-for-sale category to maintain Huntington's existing
interest rate risk position.
In October 1997, Huntington completed its acquisition of The Bank of
Winter Park (Winter Park), a $90 million bank headquartered in Winter Park,
Florida. Huntington exchanged approximately 364,000 shares of its common stock
for the outstanding shares of Winter Park in a transaction accounted for as a
purchase. The results of Winter Park will be included in the consolidated
financial statements from the date of acquisition.
Huntington acquired Citi-Bancshares, Inc. (Citi-Bancshares), a $548
million one-bank holding company headquartered in Leesburg, Florida, in February
1997. Huntington exchanged common stock and cash for all the common stock of
Citi-Bancshares. The transaction was accounted for as a purchase; accordingly,
the results of Citi-Bancshares have been included in the consolidated financial
statements from the date of acquisition.
D. In January 1997, Huntington Capital I, a Delaware statutory business trust
owned by Huntington, issued $200 million of company obligated mandatorily
redeemable capital securities. All of the common securities of Huntington
Capital I are owned by Huntington. The proceeds from the issuance of the capital
securities ($200 million) and common securities ($6.2 million) were used by
Huntington Capital I to purchase from Huntington $206.2 million of Floating Rate
Junior Subordinated Debentures. The subordinated debentures are the sole assets
of the trust, bear interest at a variable annual rate equal to LIBOR plus .70%
and mature on February 1, 2027. Interest payments made on the capital securities
are reported as a component of interest expense on long-term debt.
E. Per common share amounts have been calculated based on the weighted average
number of common shares outstanding in each period, adjusted for stock dividends
and stock splits, as applicable. The dilutive effects of unexercised stock
options and convertible debentures were not significant for any period
presented.
F. Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1997 presentation. These reclassifications had
no effect on net income.
7
<PAGE> 8
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Commercial............................................. $ 5,341,003 $ 5,129,836 $ 5,032,806
Real Estate
Construction...................................... 884,724 699,013 631,209
Commercial........................................ 2,278,754 2,138,361 2,172,214
Residential....................................... 1,272,806 1,485,568 1,483,914
Consumer
Loans.............................................. 6,415,914 6,122,730 5,995,248
Leases............................................. 1,499,433 1,182,647 1,043,689
-------------- -------------- --------------
TOTAL LOANS....................................... $ 17,692,634 $ 16,758,155 $ 16,359,080
============== ============== ==============
- --------------------------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION
- --------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
-------------- -------------- --------------
Demand deposits
Non-interest bearing.............................. $ 2,544,022 $ 2,825,586 $ 2,696,337
Interest bearing.................................. 3,591,275 3,181,512 3,076,517
Savings deposits....................................... 3,023,174 3,040,719 3,004,803
Certificates of deposit of $100,000 or more............ 2,106,091 1,506,914 1,572,934
Other domestic time deposits........................... 6,057,623 5,437,131 5,463,246
Foreign time deposits.................................. 267,601 410,450 339,954
-------------- -------------- --------------
TOTAL DEPOSITS.................................... $ 17,589,786 $ 16,402,312 $ 16,153,791
============== ============== ==============
</TABLE>
8
<PAGE> 9
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- PERCENT ---------------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
- ----------------------------------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 30,382 $ 27,262 11.44% $ 86,817 $ 80,235 8.20%
Mortgage banking .................. 20,672 11,897 73.76 39,826 33,522 18.81
Trust services .................... 12,124 10,381 16.79 36,083 31,514 14.50
Electronic banking fees ........... 5,947 3,452 72.28 16,503 8,013 105.95
Credit card fees .................. 5,073 4,255 19.22 13,791 17,859 (22.78)
Investment product sales .......... 4,987 3,054 63.29 14,321 10,463 36.87
Securities gains .................. 1,242 6,172 N.M. 6,944 13,379 (48.10)
Other ............................. 15,670 14,911 5.09 40,044 40,909 (2.11)
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME ......... $ 96,097 $ 81,384 18.08% $254,329 $235,894 7.81%
======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NON-INTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- PERCENT ---------------------- PERCENT
1997 1996 CHANGE 1997 1996 CHANGE
- ----------------------------------- -------- --------- -------- -------- -------- --------
Salaries .......................... $ 76,068 $ 69,480 9.48% $223,025 $203,276 9.72%
Commissions ....................... 6,139 3,407 80.19 15,287 11,006 38.90
Employee benefits ................. 18,259 17,129 6.60 54,744 55,620 (1.57)
Equipment ......................... 14,503 12,854 12.83 41,863 36,735 13.96
Net occupancy ..................... 12,772 12,351 3.41 37,754 37,673 0.22
Advertising ....................... 6,139 3,495 75.65 19,306 11,711 64.85
Printing and supplies ............. 5,384 4,771 12.85 15,345 14,386 6.67
Credit card and electronic banking 3,581 4,490 (20.24) 10,433 12,479 (16.40)
Legal and loan collection ......... 3,541 2,235 58.43 9,443 7,102 32.96
Special charges ................... 47,163 0 N.M. 47,163 0 N M
Other ............................. 51,361 38,261 34.24 140,213 120,514 16.35
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ........ $244,910 $168,473 45.37% $614,576 $510,502 20.39%
======== ======== ======== ========
</TABLE>
N.M. - Not meaningful
9
<PAGE> 10
Management's Discussion and Analysis
- ------------------------------------
INTRODUCTION
Management's discussion and analysis contains forward-looking
statements that are intended to enhance the reader's ability to assess the
future financial performance of Huntington Bancshares Incorporated (Huntington).
Because these statements are subject to numerous assumptions, risks, and
uncertainties, actual results could be materially different. The following
factors, among others, may have such an impact: changes in economic conditions;
movements in interest rates; competitive pressures on product pricing and
services; success and timing of business strategies; and the nature and extent
of legislative and regulatory actions and reforms.
On September 30, 1997, Huntington completed the acquisition of First
Michigan Bank Corporation (First Michigan), a $3.6 billion bank holding company
headquartered in Holland, Michigan. Huntington issued approximately 32.2 million
shares of its common stock in exchange for all of the outstanding common stock
of First Michigan in a pooling of interests transaction. First Michigan had
total loans and deposits of $2.7 billion and $3.1 billion, respectively, and
total equity of $285.8 million at the date of acquisition. In connection with
the transaction, Huntington incurred a $35.0 million restructuring charge
consisting primarily of personnel, facilities, and systems costs as well as
$12.2 million of professional fees and other costs to effect the merger
(reported on a combined basis as "Special Charges"). Other one-time costs in the
quarter related to the First Michigan acquisition were an additional loan loss
provision of $4.8 million and non-interest expenses of $4.0 million. All
financial information appearing in this report, except dividends per share, has
been restated for the pooling of interests with First Michigan.
Huntington completed its acquisition of The Bank of Winter Park, a $90
million institution headquartered in Winter Park, Florida (Winter Park), on
October 31, 1997. The transaction was
10
<PAGE> 11
accounted for as a purchase; accordingly, the results of Winter Park will be
included in Huntington's consolidated financial statements from the date of
acquisition.
OVERVIEW
Huntington's net income, excluding merger-related charges, was $87.5
million, or $.46 per share, for the third quarter of 1997 compared with $77.4
million, or $.40 per share, for the same period last year. On this same basis,
net income was $248.2 million, or $1.31 per share, during the first nine months
of the year versus $225.1 million, or $1.16 per share, in the comparable period
of 1996. Reported net income, including merger-related charges, was $41.2
million, or $.22 per share, in the recent quarter and $202.0 million, or $1.06
per share, year-to-date.
Excluding the impact of merger-related charges, Huntington's return on average
equity (ROE) of 17.79% for the third quarter and 17.76% for the nine months just
ended was up from 17.75% and 16.98% in the same periods one year ago. On this
same basis, return on average assets (ROA) also improved to 1.37% and 1.32%,
respectively, versus 1.33% and 1.30% in the comparable periods last year.
Including merger-related charges, ROE was 8.41% and 14.48%, respectively, in the
three and nine months just ended; ROA was 0.65% and 1.08%, respectively, in
these same periods.
Total assets were $25.6 billion at September 30, 1997, up 4.9% from
year end and 6.6% from third quarter 1996. This growth was attributable to a
broad-based increase in loans, with particularly strong results in the consumer
category.
Total deposits grew 7.2% from December 31, 1996, and 8.9% compared with
one year ago. Core deposits represent Huntington's most significant source of
funding; when combined with other core funding sources, they provide
approximately 70% of Huntington's funding needs.
Huntington's wholesale liability mix changed somewhat since year end,
as certain short-term borrowings were replaced upon maturity with medium term
notes having a contractual term greater than
11
<PAGE> 12
one year (a component of long-term debt). The January 1997 issuance of $200
million of capital securities by a special-purpose subsidiary of Huntington
provided additional long-term funding. The capital securities were a
cost-effective means of strengthening Huntington's regulatory capital position.
Shareholders' equity increased 9.0% in the first nine months of 1997
and was up 10.1% from one year ago. The higher equity was primarily the result
of retained earnings and the common stock issued by Huntington in its February
1997 acquisition of Citi-Bancshares, Inc., a $548 million one-bank holding
company headquartered in Leesburg, Florida.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $257.2 million and $767.7 million,
respectively, for the three and nine months ended September 30, 1997, an
increase of 13.7% for the quarter and 15.3% year-to-date. Interest rate swaps
and other off-balance sheet financial instruments used for asset/liability
management purposes provided a benefit of $1.2 million in the recent quarter and
$3.5 million for the first nine months of 1997, versus reductions in the same
periods one year ago of $12.4 million and $43.0 million. Higher loan volumes
also contributed to the increase in net interest income. The net interest
margin, on a fully tax equivalent basis, was 4.41% during the three months just
ended compared with 4.25% in the third quarter of 1996. The latter percentage
was negatively impacted by off-balance sheet interest rate contracts that
reduced the margin by 27 basis points, a significant component of which was
amortization of net losses from closed positions. At September 30, 1997,
deferred gains and losses remaining to be amortized were immaterial.
PROVISION FOR LOAN LOSSES
The provision for loan losses, including the additional provision of
$4.8 million from the First Michigan acquisition, was $28.4 million in the third
quarter of 1997, up from $23.0 million in the same
12
<PAGE> 13
period last year. The year-to-date provision was $81.6 million, compared with
$51.3 million for the first nine months of 1996. Net charge-offs (annualized) as
a percent of average total loans were .41% in the quarter just ended and .46%
for the nine months, versus .46% and .38% for the respective periods last year.
NON-INTEREST INCOME
Non-interest income, excluding securities transactions, was $94.9
million and $247.4 million, respectively, in the recent three and nine month
periods. Adjusted for non-recurring items, the most significant component of
which was a third quarter 1997 gain of $7.0 million on the sale of single family
residential loans (included in "mortgage banking income"), non-interest income
was up 14.1% from the three months ended September 30, 1996. On this same basis,
the increase for the nine months was 10.9%. Growth in electronic banking fees,
investment product sales, and trust revenues was particularly strong.
NON-INTEREST EXPENSE
Non-interest expense, excluding the restructuring charge and other
merger-related costs, was $193.7 million in the three months just ended and
$563.4 million in the first nine months of the year, up from $168.5 million and
$510.5 million in the year-ago periods. Higher advertising, marketing, and
volume driven expenses in 1997 represent the majority of the increase. Personnel
costs (salaries, commissions, and benefits) were up approximately 11.6% for the
quarter and 8.6% on a year-to-date basis, which is indicative of more full-time
equivalent employees and normal salary adjustments. The larger organization,
fueled by higher business volumes, acquisitions, and new business initiatives,
also contributed to an increase in various other components of non-interest
expense. The efficiency ratio for the recent three months was 55.1% compared
with 55.9% in third quarter 1996.
13
<PAGE> 14
PROVISION FOR INCOME TAXES
The provision for income taxes was $38.8 million in the third quarter
and $123.8 million in the first nine months of the year, versus $38.7 million
and $115.0 million, respectively, in the same periods of 1996. The higher
effective tax rate in 1997 was attributable to nondeductible costs incurred in
connection with the First Michigan acquisition.
INTEREST RATE RISK MANAGEMENT
Huntington seeks to achieve consistent growth in net interest income
and net income while managing volatility arising from shifts in interest rates.
The Asset and Liability Management Committee (ALCO) oversees financial risk
management, establishing broad policies and specific operating limits that
govern a variety of financial risks inherent in Huntington's operations,
including interest rate, liquidity, and market risks. On and off-balance sheet
strategies and tactics are reviewed and monitored regularly by ALCO to ensure
consistency with approved risk tolerances.
Interest rate risk management is a dynamic process, encompassing both
the business flows onto the balance sheet and the changing market and business
environment. Effective management of interest rate risk begins with
appropriately diversified investments and funding sources. To accomplish its
overall balance sheet objectives, Huntington regularly accesses a variety of
markets--money, bond, and futures and options--as well as numerous trading
exchanges. In addition, dealers in over-the-counter financial instruments
provide availability of interest rate swaps as needed.
Measurement and monitoring of interest rate risk is an ongoing process.
A key element in this process is Huntington's estimation of the amount that net
interest income will change over a twelve to twenty-four month period given a
directional shift in interest rates. The income simulation model used by
Huntington captures all assets, liabilities, and off-balance sheet financial
instruments, accounting for
14
<PAGE> 15
significant variables which are believed to be affected by interest rates. These
include prepayment speeds on mortgages and consumer installment loans, principal
amortization and maturities on other financial instruments, and balance sheet
growth assumptions. The model captures embedded options, e.g. interest rate
caps/floors or call options, and accounts for changes in rate relationships, as
various rate indices lead or lag changes in market rates. While these
assumptions are inherently uncertain, management utilizes probabilities and,
therefore, believes that the model provides an accurate estimate of Huntington's
interest rate risk exposure. Management reporting of this information is
regularly shared with the Board of Directors.
At September 30, 1997, the results of Huntington's interest sensitivity
analysis indicated that net interest income would be relatively unchanged by a
100 basis points increase or a 100-200 basis points decrease in the federal
funds rate (assuming the change occurs evenly over the next year and that
corresponding changes in other market rates occur as forecasted). Net interest
income would be expected to decrease 1.5% if rates rose 200 basis points.
Active interest rate risk management necessitates the use of various
types of off-balance sheet financial instruments, primarily interest rate swaps.
Risk that is created by different indices on products, by unequal terms to
maturity of assets and liabilities, and by products that are appealing to
customers but incompatible with current risk limits can be eliminated or
decreased in a cost efficient manner by utilizing interest rate swaps. In
addition, the swap strategy has enabled Huntington to lower the overall cost of
raising wholesale funds. Similarly, financial futures, interest rate caps and
floors, options, and forward rate agreements are used to control financial risk
effectively. Off-balance sheet instruments are often preferable to similar cash
instruments because, though performing identically, they require less capital
while preserving access to the marketplace.
15
<PAGE> 16
The following table illustrates the approximate market values,
estimated maturities and weighted average rates of the interest rate swaps used
by Huntington in its interest rate risk management program. The valuation of
interest rate swap contracts is largely a function of the financial market's
expectations regarding the future direction of interest rates. Accordingly,
current market values are not necessarily indicative of the future impact of the
swaps on net interest income. This will depend, in large part, on the shape of
the yield curve as well as interest rate levels. With respect to the variable
rate information and the indexed amortizing swap maturities presented in the
table below, management made no assumptions regarding future changes in interest
rates.
<TABLE>
<CAPTION>
Average Average Rate
Notional Maturity Market ----------------
(dollars in millions) Value (years) Value Receive Pay
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1997:
ASSET CONVERSION SWAPS
Receive fixed $ 700 1.33 ($1.7) 5.80% 5.72%
Receive fixed-amortizing 92 .75 (.3) 5.27 5.84
------ -----
TOTAL ASSET CONVERSION SWAPS $ 792 1.26 ($2.0) 5.73% 5.74%
====== =====
LIABILITY CONVERSION SWAPS
Receive fixed $1,490 2.10 $20.0 6.30% 5.74%
Receive fixed-amortizing 190 1.75 (2.2) 5.63 5.66
------ -----
TOTAL LIABILITY CONVERSION SWAPS $1,680 2.06 $17.8 6.22% 5.73%
====== =====
BASIS PROTECTION SWAPS $ 435 1.60 ($ .3) 5.78% 5.77%
====== =====
</TABLE>
The pay rates on Huntington's receive-fixed swaps vary based on
movements in the applicable London inter-bank offered rate (LIBOR).
Receive-fixed asset conversion swaps with a notional value of $200 million have
embedded written LIBOR-based call options. Also, receive-fixed liability
conversion swaps with a notional value of $150 million have embedded written
LIBOR-based caps. The portfolio of amortizing swaps consists primarily of
contracts that are indexed to the prepayment experience of a specified pool of
mortgage loans. As market interest rates change, the amortization of the
notional value of the swap will also change, generally slowing as rates increase
and accelerating when rates fall. Basis
16
<PAGE> 17
swaps are contracts which provide for both parties to receive interest payments
according to different rate indices and are used to protect against changes in
spreads between market rates. The receive and pay amounts applicable to
Huntington's basis swaps are based predominantly on LIBOR.
The notional values of the swap portfolio represent contractual amounts
on which interest payments to be exchanged are based. These notional values do
not represent direct credit exposures. At September 30, 1997, Huntington's
credit risk from interest rate swaps used for asset/liability management
purposes was $50.9 million, which represents the sum of the aggregate fair value
of positions that have become favorable to Huntington, including any accrued
interest receivable due from counterparties. In order to minimize the risk that
a swap counterparty will not satisfy its interest payment obligation under the
terms of the contract, Huntington performs credit reviews on all counterparties,
restricts the number of counterparties used to a select group of high quality
institutions, obtains collateral, and enters into formal netting arrangements.
Huntington has never experienced any past due amounts from a swap counterparty
and does not anticipate nonperformance in the future by any such counterparties.
The total notional amount of off-balance sheet instruments used by
Huntington on behalf of customers (for which the related interest rate risk is
offset by third party contracts) was $250 million at the recent quarter-end.
These separate activities, which are accounted for at fair value, are not a
significant part of Huntington's operations. Accordingly, they have been
excluded from the above discussion of off-balance sheet financial instruments
and the related tables.
ASSET QUALITY
Huntington's exposure to credit risk is managed through the use of
consistent underwriting standards that emphasize "in-market" lending to
established borrowers. Highly leveraged transactions and excessive industry or
other concentrations are avoided. The credit administration function also
17
<PAGE> 18
employs extensive monitoring procedures to ensure problem loans are promptly
identified and that loans adhere to corporate policy. These procedures provide
executive management with the information necessary to implement appropriate
change and take corrective action as needed.
Asset quality continues to be strong. Non-performing assets, consisting
of loans that are no longer accruing interest, loans that have been renegotiated
based upon financial difficulties of the borrower, and real estate acquired
through foreclosure, totaled $92.2 million at September 30, 1997, or .52% of
total loans and other real estate. Non-performing loans represented .44% of
total loans and loans past due ninety days or more but continuing to accrue
interest (primarily consumer and residential real estate) were $43.1 million at
the recent quarter-end.
The allowance for loan losses (ALL) is maintained at a level considered
appropriate by management, based on its estimate of losses inherent in the loan
portfolio. The procedures employed by Huntington in evaluating the adequacy of
the ALL include an analysis of specific credits that are generally selected for
review on the basis of size and relative risk, portfolio trends, current and
historical loss experience, prevailing economic conditions, and other relevant
factors. At September 30, 1997, the ALL represented 1.46% of total loans and
covered non-performing loans 3.29 times; when combined with the allowance for
other real estate, it was 277.3% of total non-performing assets.
CAPITAL
Huntington places significant emphasis on the maintenance of strong
capital, which promotes investor confidence, provides access to the national
markets under favorable terms, and enhances business growth and acquisition
opportunities. Huntington also recognizes the importance of managing excess
capital and continually strives to maintain an appropriate balance between
capital adequacy and returns to shareholders. Capital is managed at each
subsidiary based upon the respective risks and growth opportunities, as well as
regulatory requirements.
18
<PAGE> 19
Huntington's ratio of average equity to average assets was 7.67% in the
recent quarter compared with 7.47% in the same three months one year ago.
Huntington showed improvement during the first nine months of the year in each
of the key regulatory capital ratios, as the above-mentioned capital securities
issued by a special-purpose subsidiary of Huntington are considered a component
of Tier 1 capital under Federal Reserve Board guidelines. In addition,
Huntington's bank subsidiaries had regulatory capital ratios in excess of the
levels established for "well-capitalized" institutions.
On February 21, 1996, the Board of Directors authorized Huntington to
repurchase up to 12.1 million additional shares of its common stock (as adjusted
for subsequent stock dividends) through open market purchases and privately
negotiated transactions. The authorization represents a continuation of the
common stock repurchase program begun in August 1987 and provides that the
shares will be reserved for reissue in connection with Huntington's benefit
plans as well as for other corporate purposes. Huntington purchased 1.9 million
shares in the first nine months of 1997 at an aggregate cost of $53.4 million,
leaving 2.6 million shares available for repurchase. Upon announcement of the
merger with First Michigan, Huntington suspended its common stock repurchase
program. The program was temporarily reactivated for the limited purpose of
acquiring shares for reissue in the purchase business combination with Winter
Park. With the closing of the Winter Park acquisition in October 1997, the
common stock repurchase program has again been suspended.
19
<PAGE> 20
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
--------------- --------------- ---------------
THREE MONTHS ENDED SEPTEMBER 30, 1997 1996 % CHANGE
--------------- --------------- ---------------
<S> <C> <C> <C>
NET INCOME .............................. $ 41,232 $ 77,444 (46.8)%
PER COMMON SHARE AMOUNTS (1)
Net income ......................... $ 0.22 $ 0.40 (45.0)
Cash dividends declared ............ $ 0.20 $ 0.18 11.1
AVERAGE COMMON SHARES OUTSTANDING (1) ... 191,245 191,711 (0.2)
KEY RATIOS
Return on:
Average total assets ............... 0.65% 1.33% (51.1)
Average shareholders' equity ....... 8.41% 17.75% (52.6)
Efficiency ratio ........................ 55.11% 55.88% (1.4)
Average equity/average assets ........... 7.67% 7.47% 2.7
Net interest margin ..................... 4.41% 4.25% 3.8
- ----------------------------------------- --------------- --------------- ---------------
NINE MONTHS ENDED SEPTEMBER 30, ......... 1997 1996 % CHANGE
--------------- --------------- ---------------
NET INCOME .............................. $ 202,014 $ 225,137 (10.3)%
PER COMMON SHARE AMOUNTS (1)
Net income ......................... $ 1.06 $ 1.16 (8.6)
Cash dividends declared ............ $ 0.56 $ 0.50 12.0
AVERAGE COMMON SHARES OUTSTANDING (1) ... 190,562 193,294 (1.4)
KEY RATIOS
Return on:
Average total assets ............... 1.08% 1.30% (16.9)
Average shareholders' equity ....... 14.48% 16.98% (14.7)
Efficiency ratio ........................ 55.26% 57.20% (3.4)
Average equity/average assets ........... 7.45% 7.64% (2.5)
Net interest margin ..................... 4.43% 4.20% 5.5
- ----------------------------------------- --------------- --------------- ---------------
AT SEPTEMBER 30, ........................ 1997 1996 % CHANGE
--------------- --------------- ---------------
Total Loans ............................. $ 17,692,634 $ 16,359,080 8.2%
Total Deposits .......................... $ 17,589,786 $ 16,153,791 8.9
Total Assets ............................ $ 25,576,135 $ 23,998,460 6.6
Shareholders' Equity .................... $ 1,945,991 $ 1,766,689 10.1
Period-End Shares Outstanding (1) ....... 191,133,731 190,673,644 0.2
Shareholders' Equity Per Common Share (1) $ 10.18 $ 9.27 9.8
Regulatory Capital Data: (2)
Total Risk-Adjusted Assets ........... $ 21,389,111 $ 19,448,930 10.0
Tier 1 Risk-Based Capital Ratio ...... 8.86% 8.32% 6.5
Total Risk-Based Capital Ratio ....... 11.95% 11.57% 3.3
Tier 1 Leverage Ratio ................ 7.54% 6.99% 7.9
<FN>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Estimated.
</TABLE>
20
<PAGE> 21
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U S Treasury
Under 1 year ............... $ 8,541 $ 8,260
1-5 years .................. $ 156 $ 156 18,776 19,152
6-10 years ................. --- ---
Over 10 years .............. --- ---
------- ------- -------- --------
Total ................... 156 156 27,317 27,412
------- ------- -------- --------
Federal agencies
Mortgage-backed securities
Under 1 year ............... --- --- 532 532
1-5 years .................. --- --- 17,607 18,089
6-10 years ................. --- --- 43,641 43,476
Over 10 years .............. --- --- 759 731
------- ------- -------- --------
Total ................... --- --- 62,539 62,828
------- ------- -------- --------
Other agencies
Under 1 year ............... --- --- 15,385 15,438
1-5 years .................. --- --- 4,549 4,442
6-10 years ................. --- --- 1,769 1,799
Over 10 years .............. --- --- 0 0
------- ------- -------- --------
Total ................... --- --- 21,703 21,679
------- ------- -------- --------
States and political subdivisions
Under 1 year ............... 5,908 5,971 72,428 73,106
1-5 years .................. 14,160 14,402 119,196 124,242
6-10 years ................. 11,147 11,360 35,484 38,866
Over 10 years .............. 3,143 3,189 6,468 6,569
------- ------- -------- --------
Total ................... 34,358 34,922 233,576 242,783
------- ------- -------- --------
Total Investment Securities ..... $34,514 $35,078 $345,135 $354,702
======= ======= ======== ========
</TABLE>
21
<PAGE> 22
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE - AMORTIZED COST & FAIR VALUES BY MATURITY AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars) SEPTEMBER 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST FAIR VALUE Amortized Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U S Treasury
Under 1 year ................. $ 11,353 $ 11,425 $ 58,572 $ 58,835
1-5 years .................... 425,441 425,278 583,352 577,103
6-10 years ................... 240,781 233,100 159,747 153,489
---------- ---------- ---------- ----------
Total ..................... 677,575 669,803 801,671 789,427
---------- ---------- ---------- ----------
Federal agencies
Mortgage-backed securities
Under 1 year ................. 3,732 3,732 2,657 2,124
1-5 years .................... 160,146 160,098 232,118 235,189
6-10 years ................... 610,004 1,165,700 859,063 847,419
Over 10 years ................ 600,941 43,649 260,727 261,071
---------- ---------- ---------- ----------
Total ..................... 1,374,823 1,373,179 1,354,565 1,345,803
---------- ---------- ---------- ----------
Other agencies
Under 1 year ................. 2,980 2,999 168,825 168,894
1-5 years .................... 1,470,244 1,471,843 1,890,087 1,891,146
6-10 years ................... 782,707 784,499 178,910 177,583
Over 10 years ................ 458,372 460,389 343,946 341,968
---------- ---------- ---------- ----------
Total ..................... 2,714,303 2,719,730 2,581,768 2,579,591
---------- ---------- ---------- ----------
Other
Under 1 year ................. 17,921 18,313 24,194 24,905
1-5 years .................... 203,329 207,594 19,750 20,371
6-10 years ................... 150,795 155,290 161,377 162,417
Over 10 years ................ 283,890 284,320 267,301 267,430
Marketable equity securities . 8,480 7,486 20,700 19,449
---------- ---------- ---------- ----------
Total ..................... 664,415 673,003 493,322 494,572
---------- ---------- ---------- ----------
Total Securities Available for Sale $5,431,116 $5,435,715 $5,231,326 $5,209,393
========== ========== ========== ==========
</TABLE>
22
<PAGE> 23
FINANCIAL REVIEW
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LOAN LOSS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------
(in thousands of dollars) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD $ 247,867 $ 226,669 $ 230,778 $ 222,487
Allowance of assets acquired/other ............ 0 0 6,177 2,200
Loan losses ................................... (24,354) (23,511) (77,379) (60,390)
Recoveries of loans previously charged off .... 6,019 4,853 16,745 15,359
Provision for loan losses ..................... 28,351 22,978 81,562 51,333
--------- --------- --------- ---------
ALLOWANCE FOR LOAN LOSSES END OF PERIOD ....... $ 257,883 $ 230,989 $ 257,883 $ 230,989
========= ========= ========= =========
AS A % OF AVERAGE TOTAL LOANS
Net loan losses--annualized ................. 0.41% 0.46% 0.46% 0.38%
Provision for loan losses--annualized ....... 0.63% 0.57% 0.62% 0.43%
Allowance for loan losses as a % of total loans 1.46% 1.41% 1.46% 1.41%
Net loan loss coverage (1) .................... 5.91 x 7.46 x 6.72 x 8.69 x
<FN>
(1) Income before taxes and the provision for loan losses to net loan losses.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Quarter-End) 1997 1996
----------------------------------- ---------------------
(in thousands of dollars) III Q II Q I Q IV Q III Q
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual loans ...................... $72,385 $61,105 $64,764 $55,040 $57,346
Renegotiated loans ..................... 6,069 4,449 4,490 4,422 5,725
------- ------- ------- ------- -------
TOTAL NON-PERFORMING LOANS ............. 78,454 65,554 69,254 59,462 63,071
------- ------- ------- ------- -------
Other real estate, net ................. 13,762 14,434 20,300 17,208 16,321
------- ------- ------- ------- -------
TOTAL NON-PERFORMING ASSETS ............ $92,216 $79,988 $89,554 $76,670 $79,392
======= ======= ======= ======= =======
NON-PERFORMING LOANS AS A
% OF TOTAL LOANS ..................... 0.44% 0.37% 0.40% 0.35% 0.39%
NON-PERFORMING ASSETS AS A
% OF TOTAL LOANS AND OTHER REAL ESTATE 0.52% 0.45% 0.51% 0.46% 0.48%
ALLOWANCE FOR LOAN LOSES AS A % OF
NON-PERFORMING LOANS ................. 328.71% 378.11% 348.93% 388.11% 366.24%
ALLOWANCE FOR LOAN LOSSES AND OTHER REAL
ESTATE AS A % OF NON-PERFORMING ASSETS 277.31% 306.51% 266.89% 297.12% 282.47%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE $43,120 $40,967 $42,023 $39,267 $40,301
======= ======= ======= ======= =======
</TABLE>
23
<PAGE> 24
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Fully Tax Equivalent Basis (1) 3RD QUARTER 1997 2ND QUARTER 1997
(in millions of dollars) ---------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE
----------- -------- --------- --------
ASSETS
<S> <C> <C> <C> <C>
Interest bearing deposits in banks ................................ $ 17 5.51% $ 2 4.69%
Trading account securities ........................................ 8 5.90 11 5.67
Federal funds sold and securities purchased under resale agreements 75 5.50 39 5.50
Mortgages held for sale ........................................... 146 7.31 115 7.70
Securities:
Taxable ..................................................... 5,241 6.36 5,422 6.36
Tax exempt .................................................. 255 9.10 275 9.05
------- -------
Total Securities ....................................... 5,496 6.49 5,697 6.50
------- -------
Loans
Commercial ................................................... 5,264 8.55 5,405 8.56
Real Estate
Construction ............................................ 862 8.90 788 8.92
Mortgage ................................................ 3,865 8.73 3,845 8.73
Consumer
Loans .................................................. 6,366 9.15 6,242 9.28
Leases ................................................. 1,465 7.53 1,382 7.63
------- -------
Total Loans ............................................. 17,822 8.75 17,662 8.80
Allowance for loan losses/loan fees ..................... 254 250
------- -------
Net loans ............................................... 17,568 9.15 17,412 9.31
------- -------
Total earning assets .................................... 23,564 8.53% 23,526 8.61%
------- -------
Cash and due from banks ........................................... 905 920
All other assets .................................................. 1,132 1,042
------- -------
TOTAL ASSETS ...................................................... $25,347 $25,238
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Core deposits
Non-interest bearing demand deposits ......................... $ 2,775 $ 2,739
Interest bearing demand deposits ............................. 3,193 2.74% 3,239 2.54%
Savings deposits ............................................. 3,048 3.28 3,121 3.36
Other domestic time deposits ................................. 5,995 5.65 5,809 5.61
------- -------
Total core deposits ..................................... 15,011 4.30 14,908 4.21
------- -------
Certificates of deposit of $100,000 or more ....................... 2,085 5.70 1,940 5.63
Foreign time deposits ............................................. 379 5.75 501 5.71
------- -------
Total deposits ............................................... 17,475 4.55 17,349 4.45
------- -------
Short-term borrowings ............................................. 3,300 5.27 3,568 5.23
Long-term debt, including trust preferred securities .............. 2,100 5.99 1,984 6.08
------- -------
Interest bearing liabilities ................................. 20,100 4.83% 20,162 4.75%
------- -------
All other liabilities ............................................. 528 481
Shareholders' equity .............................................. 1,944 1,856
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $25,347 $25,238
======= =======
Net interest rate spread .......................................... 3.70% 3.86%
Impact of non-interest bearing funds on margin .................... 0.71% 0.68%
NET INTEREST MARGIN ............................................... 4.41% 4.54%
<FN>
(1) Fully tax equivalent yields are calculated assuming a 35% tax rate.
</TABLE>
24
<PAGE> 25
CONSOLIDATED AVERAGE BALANCES AND INTEREST RATES (QUARTERLY DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1ST QUARTER 1997 4TH QUARTER 1996 3RD QUARTER 1996
----------------------------- ------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE RATE BALANCE RATE
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ 1 6.74% $ 2 5.25% $ 3 5.37%
8 5.29 16 5.69 15 5.83
41 5.52 36 5.48 24 6.21
87 7.74 101 7.97 109 8.23
5,433 6.35 5,167 6.34 5,129 6.37
283 9.18 281 9.17 285 9.29
------------ ------------ ------------
5,716 6.50 5,448 6.49 5,414 6.52
------------ ------------ ------------
5,221 8.51 5,004 7.81 4,917 7.91
728 8.75 667 8.48 600 8.52
3,695 8.67 3,637 8.66 3,638 8.68
6,144 8.91 6,074 8.91 5,922 8.96
1,252 7.84 1,112 7.90 991 7.88
------------ ------------ ------------
17,040 8.64 16,494 8.44 16,068 8.49
240 237 233
------------ ------------ ------------
16,800 9.08 16,257 8.75 15,835 8.86
------------ ------------ ------------
22,893 8.42% 22,097 8.16% 21,633 8.25%
------------ ------------ ------------
884 892 873
1,046 1,035 976
------------ ------------ ------------
$ 24,583 $ 23,787 $ 23,249
============ ============ ============
$ 2,623 $ 2,683 $ 2,647
3,161 2.59% 3,087 2.59% 3,106 2.56%
3,006 3.22 2,925 3.20 2,878 3.09
5,525 5.59 5,452 5.69 5,461 5.62
------------ ------------ ------------
14,315 4.17 14,147 4.22 14,092 4.16
------------ ------------ ------------
1,652 5.47 1,536 5.58 1,552 5.45
401 5.65 390 5.71 343 5.85
------------ ------------ ------------
16,368 4.35 16,073 4.42 15,987 4.35
------------ ------------ ------------
4,116 5.14 3,926 5.16 3,269 5.32
1,820 5.91 1,531 5.73 1,816 6.22
------------ ------------ ------------
19,681 4.68% 18,847 4.67% 18,425 4.70%
------------ ------------ ------------
482 477 441
1,797 1,780 1,736
------------ ------------ ------------
$ 24,583 $ 23,787 $ 23,249
============ ============ ============
3.74% 3.49% 3.55%
0.65% 0.70% 0.70%
4.39% 4.19% 4.25%
</TABLE>
25
<PAGE> 26
- --------------------------------------------------------------------------------
SELECTED QUARTERLY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------ ----------------------
(in thousands of dollars, except per share amounts) IIIQ IIQ IQ IVQ IIIQ
- ----------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME ............................. $502,821 $503,018 $475,874 $452,716 $445,453
TOTAL INTEREST EXPENSE ............................ 245,663 240,060 228,323 223,664 219,217
-------- -------- -------- -------- --------
NET INTEREST INCOME ............................... 257,158 262,958 247,551 229,052 226,236
Provision for loan losses ......................... 28,351 30,831 22,380 25,038 22,978
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ....................... 228,807 232,127 225,171 204,014 203,258
-------- -------- -------- -------- --------
Service charges on deposit accounts ............... 30,382 28,841 27,594 27,434 27,262
Mortgage banking .................................. 20,672 10,157 8,997 10,420 11,897
Trust services .................................... 12,124 11,814 12,145 10,724 10,381
Electronic banking fees ........................... 5,947 6,192 4,364 3,999 3,452
Credit card fees .................................. 5,073 4,523 4,195 5,235 4,255
Investment product sales .......................... 4,987 4,315 5,019 3,487 3,054
Securities gains .................................. 1,242 3,604 2,098 4,240 6,172
Other ............................................. 15,670 12,055 12,319 12,631 14,911
-------- -------- -------- -------- --------
TOTAL NON-INTEREST INCOME ......................... 96,097 81,501 76,731 78,170 81,384
-------- -------- -------- -------- --------
Salaries .......................................... 76,068 74,769 72,188 70,041 69,480
Commissions ....................................... 6,139 4,437 4,711 3,581 3,407
Employee benefits ................................. 18,259 16,813 19,672 13,668 17,129
Equipment ......................................... 14,503 14,173 13,187 14,152 12,854
Net occupancy ..................................... 12,772 11,650 13,332 12,002 12,351
Advertising ....................................... 6,139 5,830 7,337 3,236 3,495
Printing and supplies ............................. 5,384 5,035 4,926 5,216 4,771
Credit card and electronic banking ................ 3,581 3,965 2,887 3,875 4,490
Legal and loan collection ......................... 3,541 3,186 2,716 4,004 2,235
Special charges ................................... 47,163 0 0 0 0
Other ............................................. 51,361 45,947 42,905 35,233 38,261
-------- -------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE ........................ 244,910 185,805 183,861 165,008 168,473
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........................ 79,994 127,823 118,041 117,176 116,169
Provision for income taxes ........................ 38,762 44,220 40,862 38,044 38,725
-------- -------- -------- -------- --------
NET INCOME ........................................ $ 41,232 $ 83,603 $ 77,179 $ 79,132 $ 77,444
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Net income ...................................... $ 0.22 $ 0.44 $ 0.41 $ 0.42 $ 0.40
Cash dividends declared ......................... $ 0.20 $ 0.18 $ 0.18 $ 0.18 $ 0.18
FULLY TAX EQUIVALENT MARGIN:
Net Interest Income ............................... $257,158 $262,958 $247,551 $229,052 $226,236
Tax Equivalent Adjustment (2) ..................... 3,115 2,948 3,047 3,018 3,026
-------- -------- -------- -------- --------
Tax Equivalent Net Interest Income ................ $260,273 $265,906 $250,598 $232,070 $229,262
======== ======== ======== ======== ========
<FN>
(1) Adjusted for stock splits and stock dividends, as applicable.
(2) Calculated assuming a 35% tax rate.
</TABLE>
26
<PAGE> 27
PART II. OTHER INFORMATION
In accordance with the instructions to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. ( i )( a ) Articles of Restatement of
Charter, Articles of Amendment to Articles
of Restatement of Charter, and Articles
Supplementary -- previously filed as Exhibit
3(i) to Annual Report on Form 10-K for the
year ended December 31, 1993, and
incorporated herein by reference.
( i )( b ) Articles of Amendment to Articles
of Restatement of Charter previously filed
as Exhibit 3(i)(b) to Quarterly Report on
Form 10-Q for the quarter ended March 31,
1996, and incorporated herein by reference.
( ii ) Bylaws -- previously filed as Exhibit
3(b) to Annual Report on Form 10-K for the
year ended December 31, 1987, and
incorporated herein by reference.
4. Instruments defining the Rights of Security
Holders:
Reference is made to Articles Fifth, Eighth
and Tenth of Articles of Restatement of
Charter, previously filed as Exhibit 3(i) to
Form 10-K for the year ended December 31,
1993 as amended by Articles of Amendment to
Articles of Restatement of Charter
previously filed as Exhibit 3(i)(b) to
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and
incorporated herein by reference. Also,
reference is made to Rights Plan, dated
February 22, 1990, previously filed as
Exhibit 1 to Registration Statement on Form
8-A, and incorporated herein by reference
and to Amendment No. 1 to the Rights
Agreement, dated as of August 16, 1995,
previously filed as Exhibit 4(b) to Form 8-K
filed with the Securities and Exchange
Commission on August 28, 1995, and
incorporated herein by reference.
Instruments defining the rights of holders
of long-term debt will be furnished to the
Securities and Exchange Commission upon
request.
11. Computation of Earnings Per Share
27. Financial Data Schedule
27
<PAGE> 28
(b) Reports on Form 8-K
1. A Report on Form 8-K, dated July 14, 1997,
was filed under report items 5 and 7,
concerning Huntington's results of
operations for the quarter ended June 30,
1997, and the merger of certain of its bank
subsidiaries.
2. A Report on Form 8-K, dated September 30,
1997, was filed under report items 2, 5, and
7, concerning the completion of Huntington's
acquisition of First Michigan Bank
Corporation. That report was amended by a
Report on Form 8-K/A, dated September 30,
1997, to include certain required financial
information of First Michigan Bank
Corporation.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Huntington Bancshares Incorporated
----------------------------------
(Registrant)
Date: November 14, 1997 /s/ Ralph K. Frasier
--------------------
Ralph K. Frasier
General Counsel and Secretary
Date: November 14, 1997 /s/ Gerald R. Williams
----------------------
Gerald R. Williams
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
29
<PAGE> 1
EXHIBIT 11
Huntington Bancshares Incorporated
Computation of Earnings Per Share
For Periods Ended September 30, 1997, and 1996
( in thousands of dollars, except per share amounts )
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $ 41,232 $ 77,444 $ 202,014 $ 225,137
Effect of Convertible Debt -- -- -- 13
------------ ------------ ------------ ------------
Fully Diluted Net Income $ 41,232 $ 77,444 $ 202,014 $ 225,150
============ ============ ============ ============
Average Common Shares Outstanding 191,245,312 191,710,810 190,562,120 193,293,766
Dilutive Effect of Stock Options 2,441,672 1,756,767 2,021,661 1,764,302
------------ ------------ ------------ ------------
Average Common Shares and Common
Share Equivalents -- Primary 193,686,984 193,467,577 192,583,781 195,058,068
Additional Dilutive Effect of Stock Options 361,113 80,269 781,124 80,269
Dilutive Effect of Convertible Debt -- 2,211 -- 39,009
------------ ------------ ------------ ------------
Fully Diluted Shares 194,048,097 193,550,057 193,364,905 195,177,346
============ ============ ============ ============
Net Income per Common Share Outstanding $ 0.22 $ 0.40 $ 1.06 $ 1.16
Primary Earnings per Share $ 0.21 $ 0.40 $ 1.05 $ 1.15
Fully Diluted Earnings per Share $ 0.21 $ 0.40 $ 1.04 $ 1.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUNTINGTON
BANCSHARES INCORPORATED QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1999 SEP-30-1996
<CASH> 1,032,222 1,025,829
<INT-BEARING-DEPOSITS> 7,580 3,002
<FED-FUNDS-SOLD> 309,882 24,668
<TRADING-ASSETS> 54,297 11,444
<INVESTMENTS-HELD-FOR-SALE> 5,435,715 5,222,930
<INVESTMENTS-CARRYING> 34,514 367,308
<INVESTMENTS-MARKET> 35,078 376,473
<LOANS> 17,692,634 16,359,080
<ALLOWANCE> 257,883 230,989
<TOTAL-ASSETS> 25,576,135 23,998,460
<DEPOSITS> 17,589,786 16,153,791
<SHORT-TERM> 2,905,003 3,920,210
<LIABILITIES-OTHER> 747,666 381,035
<LONG-TERM> 2,365,831 1,720,712
0 0
0 0
<COMMON> 1,528,771 1,290,938
<OTHER-SE> 417,220 475,661
<TOTAL-LIABILITIES-AND-EQUITY> 25,576,135 23,998,460
<INTEREST-LOAN> 1,203,144 1,046,769
<INTEREST-INVEST> 267,955 265,365
<INTEREST-OTHER> 10,614 10,882
<INTEREST-TOTAL> 1,481,713 1,323,016
<INTEREST-DEPOSIT> 479,733 431,636
<INTEREST-EXPENSE> 714,046 646,983
<INTEREST-INCOME-NET> 767,667 666,033
<LOAN-LOSSES> 81,562 51,333
<SECURITIES-GAINS> 6,944 13,379
<EXPENSE-OTHER> 614,576 510,502
<INCOME-PRETAX> 325,858 340,092
<INCOME-PRE-EXTRAORDINARY> 202,014 225,137
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 202,014 225,137
<EPS-PRIMARY> 1.05 1.15
<EPS-DILUTED> 1.04 1.15
<YIELD-ACTUAL> 4.43 4.20
<LOANS-NON> 72,385 57,346
<LOANS-PAST> 43,120 40,301
<LOANS-TROUBLED> 6,069 5,725
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 230,778 222,487
<CHARGE-OFFS> 77,379 60,390
<RECOVERIES> 16,745 15,359
<ALLOWANCE-CLOSE> 257,883 230,989
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
